U.S., EU move to retaliate against Russia

U.S. and European leaders are preparing to hit Russian officials with a series of economic sanctions unless President Vladimir Putin quickly ends his military’s incursion into Ukraine’s Crimean peninsula.

President Barack Obama said in the Oval Office on Monday that the United States is readying a series of economic and diplomatic steps that would “isolate Russia,” such as halting trade talks, banning travel visas and freezing the country’s government and business leaders’ assets in overseas financial institutions.

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“Over time, this will be a costly proposition for Russia,” Obama said.

The first moves came Monday evening, when the Pentagon paused its military exercises, port visits and planning meetings with Russia, and U.S. Trade Representative Michael Froman suspended early-stage talks with Moscow over a bilateral investment treaty that would increase commerce between the two countries.

The United States also blocked officials from Russia’s agricultural oversight agency, Rosselkhoznadzor, from making a planned visit to Washington to participate in regulatory talks this week tied to Kazakhstan’s effort to join the World Trade Organization.

Meeting in Brussels, European foreign ministers warned of “targeted measures,” starting with restricting travel visas for Russian citizens and calling off negotiations on expanding trade and investment, if Putin does not order his forces to stand down.

French Foreign Minister Laurent Fabius said Russia has until an emergency meeting of the European Union’s 28 leaders on Thursday to pull out of Ukraine before sanctions are imposed.

And U.S. and European leaders are committed to quickly crafting an international aid package to stabilize the Ukrainian government, which analysts said is teetering on the brink of default. The White House announced plans Tuesday morning for $1 billion in loan guarantees to offset the loss of Russian energy subsidies.

Congress, too, was set to work on measures to assist Ukraine. House Majority Leader Eric Cantor (R-Va.) said in a statement that loan guarantees were likely.

“I believe there is bipartisan support for such assistance, but we must make sure it is done responsibly and any legislation is not delayed by adding divisive provisions,” Cantor said. “We should be focused on moving such a package as quickly as possible.”

The West’s retaliation for Russia’s intervention in Ukraine started Sunday night, when the other seven members of the Group of Eight wealthy democracies said they were calling off preparations for their June summit in Sochi, the Russian resort city that just hosted the Winter Olympics.

Treasury Secretary Jack Lew talked sanctions Sunday with his British and French counterparts, a Treasury official said, declining to detail specific steps.

Lew, British Chancellor of the Exchequer George Osborne and French Finance Minister Pierre Moscovici also agreed to seek an International Monetary Fund package that would help stabilize Ukraine, which is facing massive debts.

That’s critical, because the military standoff has heightened Ukraine’s risk of default, said Lilit Gevorgyan, a senior sovereign risk analyst for IHS Global Insight.

The IMF and European Commission are working to assess Ukraine’s needs, which Kiev has estimated at $35 billion over two years. “However, for the IMF to commit any sizable assistance to help Ukraine would require a more stable government able to exercise its power across the country and ready to shoulder austerity measures,” Gevorgyan said.

Meanwhile, the European Union’s foreign ministers said Monday that the free trade pact between Europe and the Ukraine — an initial cause of the conflict, as Putin’s efforts to sway Ukraine’s now-ousted leaders to reject the deal triggered massive protests in Kiev — is still on the table.

In a show of support for Ukraine, Secretary of State John Kerry is set to travel Tuesday to Kiev for meetings with the new leaders of its interim government.

Congress also is preparing to act, but Senate Majority Leader Harry Reid (D-Nev.) told POLITICO that the United States needs the European community to be on board with an economic crackdown given that the continent’s ties with Russia are much closer.

Senate Finance Chairman Ron Wyden (D-Ore.) plans to ask Lew about trade- and investment-related steps the United States can take to crack down on Russia when Lew appears before the panel Wednesday.

Sen. Bob Casey (D-Pa.), a member of the Senate’s National Security Working Group, said Monday he is ready to “explore targeted asset freezes against key Russian officials or broader economic sanctions on the Russian economy.”

Rep. Jim Gerlach, the retiring Pennsylvania Republican who co-chairs the Congressional Ukraine Caucus, called Monday for the freeze on Russian assets and a ban on visas. He said the United States should also increase efforts to bring Ukraine and Georgia into the North Atlantic Treaty Organization and renew an effort to install anti-missile defense systems in Poland and the Czech Republic.

“The administration and European Union have frankly been too slow in building the appropriate, hard-hitting response that this situation necessitates,” Gerlach said. “More finger-pointing is useless. It is time for tough, comprehensive and unrelenting pressure to be applied against Russian President Vladimir Putin, the Russian economy and her people.”

Economic sanctions could serve to undermine Putin’s support among Russian business and government elites, said Timothy Ash, the head of emerging markets research at Standard Bank in London.

“Russia’s political and business elites live, invest and educate their offspring in the West,” Ash wrote in a column published Monday by the U.S.-Ukraine Business Council.

He estimated that Russian oligarchs have moved at least $1 trillion overseas in the last 20 years, and asset freezes by the Western banking sector could have a “sobering impact” on the situation by cutting those elites off from their wealth. It could also disrupt Russia’s banks, he said.

U.S. companies are watching to see how Russia will respond to a Western economic crackdown.

Altogether, U.S. companies had about $9.7 billion invested in Russia in 2011, the most recent data available, down from $14.4 billion in 2007, according to the U.S. Trade Representative Office’s annual trade estimate report.

Much of current U.S. investment is in the mining, manufacturing and banking sectors. By comparison, U.S. investment in Ukraine was $737 million in 2011.

Meanwhile, the calendar is dotted this month with a number of U.S.-Russia business meetings that could take place under increasingly difficult circumstances.

First up is a meeting of the Mid-Atlantic-Russia Business Council next week in Philadelphia, followed by the U.S.-Russia Innovation Conference on March 25-26 in Saint Paul, Minn., and the Global Technology Symposium March 26-28 in San Mateo, Calif., an event sponsored by a number of Russian technology companies.